Saks CEO says steep discounts a "one time" thing

By Aarthi Sivaraman

NEW YORK (Reuters) - Saks Inc (SKS.N) is taking steps to ensure that the upscale store chain will not have to repeat the margin-dissolving discounts it took in the 2008 holiday season, its top executive said on Wednesday.

The retailer, which has 53 Saks Fifth Avenue stores, is less than two months out of the holiday season, when it marked down some merchandise as much as 70 percent to lure thrifty shoppers into its stores.

The effort helped it clear inventory, Saks said, but hurt its gross margin, and the company posted a quarterly loss that was steeper than Wall Street had expected.

"That was a one time phenomenon," Steve Sadove told Reuters in an interview, referring to the discounts. "That imbalance in supply and demand was a one-time phenomenon, a correction that we had to deal with. I would not anticipate that you would see that again."

Sadove said Saks is targeting a 20 percent decrease in inventory for 2009 -- a move that would put less pressure on it to clear inventory later.

Lower inventory, better customer service and offering attractive products would help it stick to its resolve going forward to avoid steep sales promotions, Sadove said.

He added that Saks had no plans to target shoppers who may have traded up to Saks' deeply discounted merchandise such as designer clothes, handbags and shoes in the past months.

"Our intent is not to go after a mid-tier customer who happened to come in for a deal and make them a core customer at Saks," Sadove said. "(Saks) is a luxury player."

During a conference call earlier, Sadove quashed rumors that the retailer may have to see bankruptcy protection.

Though Sadove acknowledged that the luxury sector was suffering, he said in the interview that Saks was taking all possible steps to combat the economic downturn.

Its efforts include a 9 percent cut in its workforce, and shaving capital expenditures by over 50 percent to $60 million in fiscal 2009.

"We said we intend to be cash flow positive. Clearly as we demonstrate all that, it should stop the discussion," Sadove said.

Saks' shares were up 22.7 percent to $2.27 on the New York Stock Exchange.

(Reporting by Aarthi Sivaraman)